Outbound containers are stacked at a port in Busan, Nov. 1. Yonhap
The economic gap between Korea and the United States is feared to widen under a second Donald Trump presidency, as the former's financial dynamics are affected by its tax and regulation measures, analysts said Thursday.
Analysts said Trump is poised to cut maximum corporate income tax rates to 21 percent to bolster business growth, whereas Korea has a higher rate of 24 percent, even after tax reforms were carried out to help companies.
Under the circumstances, analysts said that Trump's plan to impose a blanket tariff of up to 20 percent on imports could dent trade-reliant Korea's economic growth potential.
According to the International Monetary Fund, Korea's economic growth potential is projected to remain at 2 percent for the second consecutive year through 2024. This rate is lower than the U.S.' 2.1 percent for 2023 and 2024.
“Tax regulations have been dragging down Korean businesses and they may lag further behind their U.S. peers when the U.S. corporate tax is reduced under a second Trump administration,” a senior official at a business lobby group said on the condition of anonymity.
The official pointed out that the Yoon Suk Yeol administration initially proposed to slash maximum corporate income tax rates from 25 percent to 22 percent in its 2022 tax reform plan.
The plan, however, faced protests from opposition parties, who argued that the proposed tax cut would “only benefit wealthy enterprises.” Accordingly, the rate was reduced by just 1 percentage point to 24 percent, which exceeds the OECD average of 22 percent.
The official cited regulatory barriers as one of the reasons behind Korea's lagging corporate innovation compared to the U.S., citing examples of the Kosdaq in Seoul and Nasdaq in New York, where innovative and pioneering startups are listed.
Since the beginning of this year, Kosdaq has lost nearly 20 percent, while Nasdaq gained more than 30 percent.
Ahn Dong-hyun, a Seoul National University economics professor, called for faster regulatory reform. “Clearing business hurdles is especially crucial at a time of accelerated digitalization and technological transformation,” he said.
With regard to growth potential, the professor noted that Korea lagging behind the U.S. indicates “the serious nature of Korea's future in the return of the Trump era.”
Ahn said the U.S. GDP is more than 15 times larger than Korea's, noting that a larger country's growth potential is lower in general compared to smaller peers.
“Against this backdrop, Trump's tariff policy can deal a blow to Korea's stagnant growth potential, especially considering the U.S. overtook China as Korea's largest export destination,” he said.
Ahn went on to explain that Trump wants to lower the chronic U.S. trade deficit and that his plan could make Korea a target. According to the Korea International Trade Association, Korea ranked higher over the years on the list of countries where the U.S. is seeing the biggest trade deficit.
Korea was ranked 14th in 2021, but climbed to ninth in 2022, eighth in 2023 and is currently sixth in the first half of 2024.